The role of chromosomal proteins in determining chromatin structure and regulating cellular function is investigated. Cell-free chromatin assembly systems are used to determine the role of chromosomal proteins HMG-14 and HMG-17 in chromatin structure and in transcription. We found that HMG-14/-17 enhance the transcriptional potential of a chromatin template but not that of a deproteinized DNA template. This result indicated that these proteins act only in the context of a chromatin template. In cell-free extracts the proteins enhance transcription only when incorporated into nucleosomes during chromatin assembly on replicating DNA. The results indicate that the pathway of assembly of HMG-14/-17 into chromatin determines the transcriptional potential of the resulting template. The proteins stimulate transcription by unfolding the chromatin template thereby increasing the turnover number of transcriptionally active templates. These results were confirmed in studies with SV40 minichromosomes, which were derived from cell lines overexpressing HMG-14. Subsequent studies reveal that HMG-14 protein increases transcriptional elongation rather than initiation. These studies provide insight into the molecular mechanisms involved in the generation of the chromatin structure of transcriptionally active genes and suggest that HMG-14 and HMG-17 are architectural components that facilitate transcription from chromatin templates. Studies on the binding of HMG-14/-17 to nucleosomes indicate that these proteins segregate to form complexes of chromatin subunits containing, exclusively, either two molecules of HMG-14 or two molecules of HMG-17. Heterodimeric complexes containing both proteins on the same nucleosomes' cores are not formed. Studies with various deletion mutants of the proteins revealed that the proteins "cross-talk" on the surface of the nucleosomes by inducing specific allosteric transitions in the structure of these chromatin subunits. The results suggest that HMG-14/-17 are clustered in specific domains and each type of protein is associated with a specific subset of DNA sequences. Antibodies to HMG-17 are found in over 80% of individuals suffering from juvenile rheumatoid arthritis (JRA). Using a variety of synthetic peptides we have identified the major epitope of HMG-17 in these patients. The results raise the possibility that molecular mimicry is an important factor in the etiology of JRA.